Question

Carter Co. acquired drilling rights for $18,550,000. The oil deposit is estimated to produce a total of 74,200,000 gallons. During the current year, 6,000,000 gallons were drilled. Record the journal entry on December 31 to recognize the depletion expense for the year. In your journal entry be sure to clearly indicate what accounts/amounts you are debiting and what accounts/amounts you are crediting.
Journal
Date Description Post. Ref. Debit Credit

Answer 1

Answer:

Depletion expenses Dr $1,500,000  

          To Accumlated depletion  $1,500,000

(Being the depletion expense is recorded)

Explanation:

The journal entry is shown below:

Depletion expenses Dr $1,500,000  

          To Accumlated depletion  $1,500,000

(Being the depletion expense is recorded)

For recording this we debited the depletion expense as it increased the expense and credited the accumulated depletion as it reduced the assets

The computation is shown below:

The purchase price is

= Aquired value ÷ estimated production

= $18,550,000 ÷ 74,200,000

= $0.25 per gallons

Now depletion allowance is

= current year production × purchase price

= 6,000,000 × $0.25

= $1,500,000